In California, a Second Internet Gold Rush

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In the last decade, he notes, the number of people hooked to the Internet has grown from 100 million to 1 billion, with 3 billion expected by the end of the next decade. And because of the increased speed and the growth in the number of things we do using the Internet, the intensity of use is increasing exponentially. Given that potential demand, he says, the industry has only begun to tap the Internet's potential. The profits of entire industries -- telephony, entertainment, news, financial services, retailing -- are now up for grabs.

What's also different this time, adds Andreessen, is that with the introduction of cheap servers, open software and inexpensive programming tools, it's now much less expensive to start a company. And irrespective of what you may think of valuations, the only companies commanding premium prices are those with proven products and proven ability to deliver viewers and revenue, including a number, such as Google, that were born during the last bubble and are stronger for having weathered the bust.

Andreessen is certainly not the only one making these arguments, and, up to a point, I think he's probably right. The current boom has more to play out, and it is a mistake to assume it will play out the way it did last time. But there are also some things to be wary of.

For starters, most of the companies being bought or funded these days have business models that rely on advertising revenues rather than fees. That's fine for any one company. But it seems to ignore the reality that there is only so much advertising money to go around, and that even if it is better targeted, there are only so many marketing messages a person can consume, and so many Web sites one can visit, in 16 waking hours.

It is also hard not to be skeptical of some of the supposedly hot applications that are drawing so much money and attention, such as Twitter, which allow you to message your friends about what you are doing every hour of the day. These are the sort of applications that may appeal to students and young adults in rich industrial countries, but I somehow doubt they will draw many eyeballs from working-class Chinese or Brazilian parents juggling families and jobs.

The better wisdom here is probably that of Michael Moritz, the famed Sequoia Capital venture capitalist whose big scores include Google, Yahoo and PayPal. Moritz acknowledges he is in a more skeptical mode right now, but hardly expects the sky to fall.

"These times of overenthusiasm lead inevitably to lots of bedlam and carcasses strewn in the road," he said this week. "But a handful of companies will live through it and become superb companies that will be around for the long haul. And that's what living and working and investing in Silicon Valley is all about."